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Regulatory References Go Live in Financial Services Sector

Regulatory References Go Live in Financial Services Sector

There has been much coverage of the requirement for financial services firms to provide more detailed references for senior employees, so this is just a reminder that the new rules come into force from 7 March 2017 and a refresher on the key requirements. Going back to the rationale for the new rules, the FCA and PRA decided that more detailed references for senior individuals would help to ensure that people performing senior roles are fit and proper to do so.

  • The full rules apply to full-scope regulatory reference firms, i.e. banks, investment firms and insurers.
  • Regulatory references will be required for the following roles:
    • Senior management functions
    • Certification functions
    • Notified–non executive directors
    • Senior insurance management functions
    • FCA controlled functions
    • Other key function holders
  • References must be obtained from the individual’s current employer and previous employers in the past six years, at which they performed a relevant function, and include the relevant information for all of that six year period. This applies irrespective of whether the previous employer is an authorised firm or is based overseas.
  • The requirement also applies to an employee moving roles within the same company, if a compliant reference was not received when the individual was first employed or if the employee was not previously regulated.
  • In terms of content, the reference must include information that the referee reasonably considers to be relevant to assess the fitness and propriety of the candidate. The FCA and PRA have produced template references, which may, in practice, prove the easiest way to ensure compliance. The key information that the FCA/PRA expects to be included is details of any disciplinary sanction relating to the regulatory conduct rules/the individual’s fitness and propriety. This can be difficult where an individual has resigned during an investigation – in that scenario, the referee needs to balance providing disclosure to meet the FCA’s/PRA’s expectations with its general duty to provide accurate and true information. In practice, this is likely to mean the referee stating that the individual resigned during an investigation/disciplinary proceedings, but before any decision had been made. To date, it has not been uncommon for agreed references to be negotiated as part of settlement agreements. However, going forward, firms must not fetter their ability to provide fully compliant references by agreeing to provide a reference in a particular form.
  • In terms of timing:
    • References must generally be obtained no later than one month before the end of the regulatory application process and ideally before the application is submitted. The new employer will have to confirm to the regulator if regulatory references have been obtained and, if not, explain why.
    • The regulators expect firms to be able to provide the reference within six weeks of receiving the reference request.
  • In addition to the initial provision of the reference, the referee must also update any regulatory reference it provides if new information about the individual’s conduct comes to light.